The statistics on credit extension in South Africa are illuminating and startling. In 2002 R289-billion worth of credit was extended to households. In 2006 that figure soared to R680-billion — more than double the volume of credit in a four-year period.
Today the amount of credit granted has spiralled to about R1,1-trillion in total. Of this, the statistics suggest, bank-granted credit probably accounts for more than 80%.
“This represents a staggering growth in consumer credit,” says the National Credit Regulator’s CEO, Gabriel Davel. “If this level of growth is not curtailed there is going to be a major problem further down the line.”
The Governor of the Reserve Bank, Tito Mboweni, has consistently tried to curtail the extension of credit provision for the past two or three years. In this sense, the messages being put out by the Reserve Bank and the national credit regulator have strong synergies: “Calm down now or we will have a crisis later.”
The issue of when credit providers can be deemed to be guilty of “reckless lending” is complex — and in some cases credit lenders can forfeit the right to recover a debt. This is not an automatic forfeiture, but is subject to a court ruling by a magi-strate, who has to classify the loan as “reckless” after taking all the circumstances relating to the granting of the credit facility into account. The creditor’s legal right to foreclose on the debt is then suspended. In some instances the credit provider may be able to reinsitute a claim at a later stage.
If customers give incorrect information — or omit relevant information — they automatically lose the right to have any credit agreement deemed reckless.
“The law is very explicit on this,” says Davel. “If the client lies by deliberately giving incorrect information and there is no record of an adverse judgement for bad debt on credit bureau records, then there was no way that the credit provider could have been aware that the client was overindebted. That agreement cannot then be deemed reckless.”